Technology M&A
Abstract:
2016 was another record breaking year for tech M&A with $467 billion in global transaction value, just slightly higher than 2015’s pre- vious record of $460 billion. The start to 2017 has been slightly slower than the pace set in 2016, but M&A activity is expected to ac- celerate through the rest of the year and the global tech M&A outlook remains overwhelming positive. 2016 European tech M&A also reached new highs with $127 billion in total transaction value, which included a string of mega-deals: Qualcomm acquired NXP for $47 billion, Softbank acquired ARM for $32 billion, Tencent acquired Supercell for $10 billion. The Brexit vote dominated the headlines, but we have seen no impact on the M&A market, with the exception of less expensive valuations for foreign acquirers due to currency fluctuations. Cross-region deal activity also increased in 2016 accounting for $208 billion in global transaction value. Large acquirers are increas- ingly looking beyond domestic borders for new capabilities and the top innovators. Europe’s healthy early-stage funding environment and the widespread entrepreneurial talent are expected to continue to fuel cross-region tech M&A activity. Germany and the U.K. con- tinue to lead the way for both European tech M&A and funding, but there is growing competition from many other European countries, such as Austria, Denmark, Finland, France, the Netherlands, Portugal, Spain, Sweden and Switzerland. Financial sponsors are playing an increasingly active role in the tech M&A market, deploying funds and professionals in multiple coun- tries to execute global investment strategies. PE firms completed $95 billion in tech M&A transaction value and accounted for roughly 20% of all tech transactions in 2016. Another growing PE trend has been the use of buy-and-build strategies. Add-ons are a way to quickly deploy capital using existing portfolio companies and achieve high target returns through acquisition synergies and cross- region expansion. Portfolio managers utilize this strategy for valuation multiple expansion and a higher exit price as they build critical mass and consolidate global market share. Add-ons made up 50% of all PE buyout activity in 2016. Meanwhile, the contrast to the IPO market could not be greater. Just 21 tech IPOs came to market in 2016, the lowest number since the Great Recession of 2009, and a tiny fraction of the go-go days in 1999 when 253 tech IPOs were completed. As more venture- backed companies stay private for longer, PE funds are stepping in to fill the void providing much needed liquidity for aging venture portfolio companies. The PE model is arguably better suited where a patient approach is more likely to achieve a lucrative exit down the road. There has been a small recovery in 2017 with 18 tech IPOs year to date, but the long-term downward trend is firmly in place. This panel of distinguished corporate development, legal and private equity professionals will address the landscape of the current technology M&A market and provide insight for entrepreneurs into the thought process behind evaluating an acquisition opportunity. Introduce yourself, your firm, and take a minute to express your firm’s current M&A posture in this market. The “Bigs” do far more smaller acquisitions than mega deals (80% of all tech M&A deals are below $100 million). Why is that, and will it continue? There were a number of mega deals in both the US and Europe (Qualcomm/NXP, Softbank/ARM, Tencent/Supercell, Dell/EMC, Microsoft/LinkedIn, Oracle/NetSuite). What is driving this? What do these landmark deals mean for Europe specifically? How important is the rapid and powerful emergence of the Asian tech companies (Alibaba, Huawei, Tencent, Rakuten) to the global tech M&A market? In the US, the IPO marketplace has become a big cap dominated game, but in Europe it is more of a mix (Europe has more pub- lic tech companies than the US and China). Do you agree? Why are more European companies looking to the public markets? There is less late-stage PE funding in Europe compared to the US. How does this change the exit horizon for European tech companies? Do European tech companies tend to exit earlier than their US counterparts due to the private funding gap? Like we saw in the dotcom era, you now see large non-tech companies buying into tech, like Walmart purchasing Jet. Why is that and will it accelerate? We have seen a surge in PE backed platform companies, voracious for add-on acquisitions. Why is that, and will it continue? Has this changed the competitive landscape and valuation for attractive target companies? How much is geographic location a factor when considering targets and building your M&A roadmap? How do you expect the rest of this year and next to play out in deal volume and size? How important is the IPO market as competition to the strategic buyers? Does that vary in the international markets? What tech sub markets do you predict to be most active over the next 12 months? Are these sub markets different for Europe? Once deal economics are done on a private transaction, why are these deals still taking so long to get done these days? Discussion Topics:
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